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Merrill Lynch Bests Competitors

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Beating out Deutsche Bank and UBS, which announced writedowns of $3.11 billion and $3.4 billion this week, respectively, was Team Merrill, marking down the value of mortgages, asset-backed bonds and leveraged loans at $5.5 billion. The bank projects that its moment of glory will translate to its first quarterly loss in six years, at a net loss per share of up to 50 cents. In a statement this morning, ML attributed the bad news to “an unprecedented move in credit spreads and a lack of market liquidity in these securities, which intensified during the third quarter.''
In September, the investment bank “hinted” at some problems having to do with credit when it reminded investors via a security filing that while it may be best known for its “retail” brokerage for individual investors, the firm had a decent amount of exposure to those areas of the mortgage markets of which we do not speak. (Apparently the last line of the filing, “So brace yourselves, and don’t say we didn’t warn you” was not meant to be a mixed message.) Merrill also may have been trying to tip us off to the imminent bad news on Wednesday, when it fired Osman Semerci, the bank’s global chief of fixed-income, and his number two guy, Dale Lattanzio, co-head of the division’s American operations.
Merrill Chief Stan O’Neal said that he and his employees were “disappointed in [their] performance in structured finance and mortgages.” He added that the writedowns were limited by "aggressive and effective risk management." Obviously not “too aggressive” or “too effective,” but “slightly aggressive” and “slightly effective,” one would guess.
Besides all that, Merrill noted that third-quarter revenue will rise at least 20% in its equity markets, investment banking and wealth management operations, and gave its full endorsement to David Sobotka, new head of fixed income, who has a “proven track record'' managing risk.
Merrill Lynch to Write Down $5.5 Billion in Credit Losses [WSJ]
Merrill Hints of Credit Woes [WSJ]